Clyde Prestowitz, a labor economist who came to prominence as one of America’s top trade negotiators during the Reagan Administration, for decades has worried about the decline of U.S. economic competitiveness.

In the 1980s, he worried about Japan’s takeover of industries, such as electronics and steel, which the U.S. had long dominated. He has long been critical of Washington’s embrace of free trade and its aversion to the industrial policy that countries like South Korea practice.

Last month, Mr. Prestowitz got attention in South Korea when he published a column on the Web site of Foreign Policy called “Korea as Number One.”

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“The South Koreans have long been confident that anything the Japanese can do, they can do better,” he wrote. “But now they’re proving it.”

We caught up with Mr. Prestowitz, who is now president of the Economic Strategy Institute in Washington, when he was in Seoul last week doing more research. Here’s a portion of what he said:

WSJ: If South Korea has repeated Japan’s success, how can it avoid Japan’s failures?

Mr. Prestowitz: Korea is doing to Japan right now what Japan did to the United States in the 1980s. I guess one way Korea can avoid, and maybe has avoided, Japan’s failures is Korea went through the 1997 financial crisis and, as a result of that, cleaned up its financial system. Where the major downfall of Japan was the bubble of the late 80s and the collapse of the bubble, and the failure to respond quickly to the collapse of the bubble, Korea doesn’t appear to be facing that kind of situation. And the IMF helped it to clean up.

But I think that all of these things run in cycles. One problem that Korea shares with Japan, and is I think even farther along than Japan, is the aging of the population and the shrinkage of the population. Demographics is increasingly going to be an issue for Korea. And Japan being a much bigger economy came under pressure from the international community to conform more and respond to trade frictions. Korea has kind of been under the radar. But now it’s getting big, so it’s getting more attention. That will also bring its own complications.

Then you also have the factor that, in industries like semiconductors particularly, the investment requirements to stay in the game are just enormous. And they’re the kind of investment requirements that, if you slip, can bring down the whole company and even the country’s industry. Korea so far has made the right investment bets. The question is will it always be making the right investment bets and what happens if one of those goes wrong?

It’s not a cloudless sky, but it’s still pretty bright.

WSJ: Often we hear Koreans quietly talk about their fears about China. They are reluctant to air them in the mass media. But that seems to be a trait a lot of the world shares.

Mr. Prestowitz: It’s a trait that a lot of the world shares. I was last week in conferences in Singapore, then in Nanning and Hong Kong. The one commonality of the three conferences was that people were very careful about what they said and how they said it about China.

I think it’s kind of a problem in the global discourse. Where China is concerned, because of the lack of transparency in China, there’s a great reluctance on the part of businesses that have a stake in China to speak frankly.

WSJ: You’ve been worried about the long-term direction of the U.S. for a long time. What is your view of what’s happening with the American economy right now?

Mr. Prestowitz: The U.S. economy is struggling. The employment numbers are not moving in the right direction. Investment is not moving in the right direction. And I fear it’s going to be hurt a lot more by the European situation. Europe looks to me like it’s falling off a cliff. People don’t think about it this way but the EU is the biggest economy, bigger than the U.S. If that goes over the cliff, there’s no way it can’t have severe damage to the U.S. and Asia.

Ironically, I think the U.S. is in some ways in a better position than the rest of the world in that Europe is in for years of austerity and difficulty and the Asian countries are still so export-reliant. One myth that has been shattered is the myth of decoupling. So the impact of a slowdown in Europe will have a big impact on the Asian economies.

But because the U.S. is a deficit economy in trade, the U.S. does, if it got its act together, have an option for growth. That is to produce more domestically and import relatively less. There are discussions going on along those lines in the White House. President Obama has talked about the importance of manufacturing and making stuff in the U.S. That may be a straw in the wind of where the U.S. is going.